Burkina Faso: Risk Assessment
Business Climate Rating1
Growth sustained by agriculture and an expanding mining sector
There was strong growth in 2013, driven by cotton production and the mining boom. Then 2013-2014 agricultural campaign has got off to a promising start, with regard to rain forecasts, and continued investment under the Strategy for Accelerated Growth and Sustainable Development will maintain a high rate of growth in 2014. The most significant risk affecting the economy is a fall in cotton and gold prices. Government efforts aimed at increasing cereal and cotton production are expected to lead to an increase in sown acreage. The measures relate to the distribution of improved seeds, better prices for producers, input subsidies and the clearing of arrears. Infrastructure investments relate to Donsin airport under the Bagre Growth Pole Project. The coming on-stream of the Bissa gold mine in January 2013 will increase gold production. The primary sector’s dependence on weather conditions remains a source of weakness. It is planned to reduce dependence on gold and cotton by encouraging agribusiness in the sectors of cattle rearing, fruit and shea butter production.
The success of the agricultural campaign has brought inflation down below the WAEMU target (3%). Inflation looks set to remain stable in 2014.
Fiscal reforms are reducing the risk of over indebtedness
The fiscal deficit was reduced in 2013. The downward trend is expected to continue in 2014 thanks to fiscal reforms and containment of current spending. Revenues are expected to rise with better tax collection and higher mining royalties. Moreover, the government plans to cross check civil service census data with a biometric database in order to prevent double benefits and rationalize the wage bill. However, the slow pace of the State’s divesture in the capital of SOFITEX (cotton), the losses reported by SONAHBY (oil) and SOBABEL (electricity) could widen the deficit as a result of recapitalizations and subsidies.
The risk of over-indebtedness is moderate. Short-term debt will remain composed of grants and concessional loans. However, the concession level could be revised downwards. The viability of the debt will depend on negotiation of this adjustment. Moreover, following the 6th Review under the Three-Year Agreement under the Extended Credit Facility, an extension, followed by a 7th Review has been agreed. A new IMF lending program can be expected in 2014.
The current account deficit rose in 2013. This trend is expected to continue in 2014 resulting from higher fuel and capital goods imports. Moreover, the country’s isolation will continue to encumber the balance of services, with regard to the transport of goods from the ports of Togo and Benin. The centralized customs clearance procedures process will help sustain trade and help it to flow more easily.
The banking system shows no serious signs of vulnerability. However, it seems concentrated: four big banks hold the major share of bank assets. Plans for extension relate to the use of the SONAPOST (post office) network as an intermediation channel.
Social tensions associated with the problem of the constitution and the cost of living
The question of the constitution, which prevents President B. Compaoré from standing for election in 2015, and local social demands are on the agenda. Even if the ruling Congress for Democracy and Progress party does not have the necessary majority in Parliament to change the constitution, the passing in May 2013 of a law on creating of a Senate could change the situation. The opposition and civil society fear that an amendment might be passed, if the two chambers were required to sit at the same time, especially since many of the senators would have to be appointed by the executive. This situation, together with the protests against the high cost of living and corruption, fed into the popular demonstrations of June and July 2013. The opposition is capitalizing on the discontent to organize itself around a common platform and is presenting itself as a viable alternative. With the aim of maintaining pressure on the government, the unrest could intensify in 2014. With regard to security, though the Islamic threat seems to have been thwarted in neighboring Mali, the country could still be vulnerable to incursions. For this reason, border surveillance has been strengthened. Regulations are being tightened with the adoption in May of a bill on public-private partnerships. However, judicial deficiencies and restrictive regulations on financial innovations are impeding investment.
- Africa’s leading cotton producer
- Increased importance of gold production
- Good economic policy record and implementation of structural reforms
- Support of the international financial community (one of the first countries to benefit from the HIPC initiative)
- Economy highly exposed to climatic vagaries
- Vulnerability to changes in cotton and gold prices
- Heavy dependence on foreign aid
- Landlocked country
- Demographic pressure and high poverty rate